Monday, February 4, 2008

Splitting the Difference

Every mediation is different. Different parties, different conflict, different methods and strategies that can be employed by the mediator. I tend to try to tailor my approach to the particular situation of the conflict. Sometimes, I wonder if there isn't a mediation strategy that is one size fits all (I would settle for one size fits most)?

Thinking about it some, I think that there probably is.

I was thinking about the Ultimatum Game, and its implication for mediation. In the Ultimatum Game, there are two players; the first player proposes a split of a sum of money to be shared by the two players, and the second player's only move is to accept or reject the first player's proposal. If accepted, the players split the money accordingly. If not accepted, the players receive nothing. In this sense, the proposal is a take it or leave it ultimatum. There is no further move.

Typically, the least self-interested proposal to be made by the first player is a 50-50 split, which surely would be perceived by the second player as fair and therefore accepted. The first player may strategically try to improve upon this proposal for itself somewhat, trying to profit from the first-mover advantage, but the question is, by how much?

If the first player proposes a 99-1 split, the first player may believe that the second player would prefer to receive a token 1 than nothing at all, even though that results in the second player watching the first player walk off with 99. The first player would be smart to rein in this strategic temptation, in order to make sure that the first player won't be too insulted to accept a result in which the first player walks off with too much more than the second player (even though this is still a result that is better, moneywise, for the second player to accept than reject).

Often, in this type of situation, a proposal by the first player that marries respect for the second player to the first player's self-interest will carry the day; a 60-40 split proposed by the first player is likely to be viewed as acceptable by the second player. If the first party respects the second party, it is more likely that a fair proposal to split the difference will be made, which of course increases the likelihood that a deal will be made. Likewise, if the second party respects the first party, it is more likely that the second party will allow the first party to get more, but only just a little more, than the second party might think would be justified in an ideal world.

The implication for the mediator is that if the mediator can get the parties to recognize each other as deserving of their respect, then the mediator can then, but only then, proceed to the question of how to split the difference. Parties in conflict often do not have, or have temporarily lost, their respect for the other party. If the mediator tries to get the parties to split the difference that separates them before this respect is (re)established, it is less likely that a fair proposal will be made, or seen to have been made.

Parties in commercial disputes often say that "it is all about the money;" the dispute may only be about the money, but the settlement is about respect.

1 comment:

Rachel said...

I've just been doing some reading on Prospect Theory myself, and absolutely agree with you on its importance to any mediator.

And ps: Thanks for the linklove!

-Rachel @